CEO INSIGHTS – Week Ending 14 July 2017 BY NAOS Asset Management

“I used to say Australia was geographically challenged, now I think it is geographically privileged because it is only one sector away from the biggest population in the world which is transforming so much. We are about to see on steroids what we saw in the early '80s with the Japanese [tourism boom]” John Borghetti, CEO, Virgin Australia

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

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Technology

“Last year we saw video [downloads] grow by 75% as measured by gigabytes on the network. So as an industry, we always hear that 75% to 80% of the data on the network in the next five years is going to be video and we’re seeing that play out”

Scott Mair, SVP, AT&T

Retail

“While we are pleased to see sales in the bed linen category improve, we continued to see higher than usual sales variability across our store formats, centre types, product categories and geographies. This is perhaps symptomatic of a more subdued retail environment”

Mark Ronan, CEO, Adairs

Travel & Tourism

“We are no longer a destination at the end of the line. This [expansion of international flights] is changing the way we deal with tourism and the inbound tourism numbers. There is a direct correlation between the availability of flights and the number of tourists. If we build additional aviation capacity, then we will get an increased tourism dividend from that”

Steve Ciobo, Trade, Tourism and Investment Minister

Dairy

“On the Australian front we are looking actively at this [dairy] space. We will continue to make further investments. On the dairy side, we will look into branding and we will look upstream at processing, and even the dairy, the co-ops and the manufacturing processes. It is the right time in the dairy cycle for investment”

Joel Chang, Co-founder, G.L.A.M

Egg Pricing War

“We haven’t put our [egg] prices up for two years and now we’ve got the big boys [supermarkets] having a price war” Trish Simpson, Owner, Murphy’s Crossing

“We're not talking 40 cents on the dozen, we're talking hundreds of millions of dollars to enable the industry to deliver that [price cuts] to the supermarkets”

John Dunn, CEO, Egg Farmers Australia

Residential Property

“In June, we probably exchanged twice as much as we normally would because all the Chinese were in a hurry to buy and to be able to save on stamp duty. Now this agitation has stopped and they have to face the reality that everything has changed. The market [has been] a bit slow since the beginning of July”

Harry Triguboff, CEO, Meriton

“The part of the market that has been virtually untouched by regulators and lenders is the principal and interest owner category. As a result, those opting to upgrade their homes have increased from 34% to 39% in response to some attractive lending offers”

David Bailey, CEO, AFG

Shopping Centres

“We don’t have signals to us at the moment that would cause us concern and we think we will continue with strong shopping centre performance’’

Anastasia Clarke, CFO, GPT

“In our shopping malls we have very high occupancy, a ­stable level of lease expiry and strong underlying income growth. The profitability of the retailers is improving well’’

Anastasia Clarke, CFO, GPT

Domestic Economy

“Both confidence and optimism continue to improve just as uncertainty becomes business as usual. And encouragingly, our CFOs remain comfortable in the face of the challenges uncertainty presents’’

Stephen Gustafson, Partner, Deloitte

Banking

“Significant structural change to the lending market brought about by tighter lending rules has seen increased flows of business to the non-major lenders”

David Bailey, CEO, AFG

Commodities

“Thermal coal prices declined into May and have since rallied as demand from power generators in China increased. Demand in other key seaborne markets remains steady and Indonesian supply continues to be impacted by weather related delays, which supports expectations that thermal coal prices will remain in a relatively narrow range around current levels in the near term”

Whitehaven Coal Market Announcement

“Spot metallurgical coal prices are now stabilising and should remain around current levels in the near term. If maintained into the future, the changes to the quarterly benchmark pricing methodology will result in closer correlation between quarterly benchmark and spot index prices”

Whitehaven Coal Market Announcement

“What you are looking at here is not the lithium industry per se. What you are looking at is the biggest change in energy management since the Industrial Revolution. There is insatiable demand because people want portable power and they want renewable energy 24 hours a day. If you want renewables 24 hours a day you have got to have storage”